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TheStreet Open House

Fed Says 18 Biggest US Banks In Stronger Position

By MARCY GORDON and CHRISTINA REXRODE

WASHINGTON (AP) â¿¿ All but one of the nation's 18 largest banks are more prepared to withstand a severe U.S. recession and a global downturn than at any time since the 2008 financial crisis, the Federal Reserve says.

Results of the Fed's annual "stress tests" showed Thursday that as a group, the 18 banks hold fewer bad loans compared with last year, thanks to a stronger economy. The Fed will announce next week whether it will approve the banks' plans to increase dividends or repurchase shares.

The Fed's data show that one of the banks, Ally Financial Inc., would have a much lower capital buffer against losses than the others under the most severe scenario. Ally's projected capital level is below the minimum that the Fed considers a bank would need to survive a severe recession.

But Fed officials wouldn't say whether that means it would reject Ally's request for issuing dividends or buying back shares, if Ally were to make one.

Last year, government-owned Ally â¿¿ the former financial arm of General Motors â¿¿ was the worst-performing bank in the Fed's stress tests. It was one of four banks that failed the tests and were not allowed to raise their dividends or repurchase shares. The others were Citigroup Inc., SunTrust Banks Inc. and MetLife Inc., which has since sold its banking operations and is no longer tested.

Citigroup objected to any characterization that it had failed the 2012 test. It said it had enough capital to withstand the Fed's crisis scenario, just not enough to do that and raise its dividend at the same time.

In a statement, Ally countered that it is well-capitalized and called the Fed's analysis for calculating the bank's potential losses "fundamentally flawed."

"While Ally appreciates the Fed's role in ensuring that financial institutions have adequate capital during stressed situations, using flawed assumptions could have lasting adverse impacts on the economy, including ultimately causing banks to reduce certain key lending categories," the bank said.

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